Defending Against State-Sponsored Espionage Targeting the U.S. Private Sector is a Team Effort

By Glenn Chafetz

Glenn Chafetz is the Director of 2430 Group, a non-profit, non-partisan institution that produces and disseminates research on state-sponsored espionage against the U.S. private sector. Glenn has more than 30 years experience in government, academia, and the private sector. He spent most of his career at CIA, where he served multiple overseas tours, including three as Chief of Station. He was also the Agency’s first Chief of Tradecraft and Operational Technology. Glenn also served in the State Department, both overseas and in Washington, and has taught or held research positions at a number of universities, most recently American University, and the National Intelligence University.

OPINION — Last year, Congress spent 52 billion dollars on the CHIPS Act to advance the semiconductor industry in the United States because semiconductors are critical to the U.S. strategic advantage. Yet, the U.S. government and private sector spend almost nothing to protect that advantage, specifically against state-sponsored theft.  It makes little sense for the U.S. government to support private sector research, development, and manufacture of critical technology like semiconductors, and then lose those hard-fought gains to espionage.

Approximately 80 percent of all economic espionage prosecutions brought by the U.S. Department of Justice (DOJ) allege conduct that would benefit the government of the People’s Republic of China (PRC). What the PRC government learned decades ago, was the asymmetric advantage of attacking United States defenses where they are weakest – its private sector.  The PRC organizes the entirety of the country’s intelligence, economic, law enforcement, and justice resources – all protected by the shield of sovereignty –  to attack individual American companies. This is not close to an even contest, and predictably, the U.S. is losing.

A recent example from the semiconductor measurement and quality control sector illustrates this imbalance. A small California company developed tools that makers of advanced chips require to detect defects, especially as manufacturers introduce new processes, materials, and methods. According to the Congressional testimony and court filings of the company, in 2020, three employees of FemtoMetrix – all PRC citizens – assumed to be loyal to the company and invested in its success, suddenly left and returned to China. They allegedly took with them trade secrets and proprietary technology, and then formed their own company, Weichong Semiconductor. Prosecutors believe they made a business plan based on FemtoMetrix’s business, and started soliciting FemtoMetrix’s customers, and even listed current FemtoMetrix employees as Weichong employees and circulated promotional images still showing FemtoMetrix name. This is the definition of brazen.

Sadly, this kind of case is common.  The FBI estimates that losses from theft by China alone total somewhere between 200 and 600 billion dollars per year.  This is almost certainly an underestimation because in many cases of espionage, the victimized U.S. companies do not know they have been plundered, or if they do, they do not report it or seek redress.

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If the DOJ’s allegations are true, FemtoMetrix spent more than a decade and tens of millions of dollars researching and developing a technology that provided great advantage to U.S. semiconductor manufacturers, only to see it stolen and exploited by commercial spies backed by the combined resources of a powerful sovereign state. A judgment in China is unenforceable. Collection in China of a U.S. judgment is impossible.  The U.S. legal system is not capable of deterring or punishing purposeful, foreign thefts of U.S. intellectual property. Moreover, given how widespread and endemic IP theft is in China, even among its own companies, it is not going to stop.

However, the U.S. government can take at least three actions to make the contest less one-sided.

Congress can authorize DOJ to provide funding and direct legal support to American companies that have suffered espionage losses of this kind.

Congress can also strengthen the 1996 Economic Espionage Act to enable the DOJ to pursue more criminal prosecutions, not just of the spies themselves, but also those in the United States who abet them.

Finally, Congress can empower the Department of Treasury to sanction any company worldwide that does business with firms that are found to have stolen U.S. IP.

However, the scale, intensity, and scope of the problem exceed the authorities and resources of the U.S. or any other democratic government so American companies also have a role to play in their own defense.  They must recognize they are targets of sophisticated, state-sponsored espionage and invest more in their own security, including insider threat programs.  This will be challenging for smaller companies and those just starting out, but they can come together to share those burdens.

Investing in commercial counterespionage is a cost most companies do not even know they need to bear; but failing to do so risks a loss they cannot afford.

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